Active Managers Struggled in 2007 But Increased Volatility Could Benefit Investors in 2008

    Russell Active Manager Report Highlights

      -   Increased volatility provides greater opportunities for skilled
          managers to add value

      -   Only 41% of Canadian equity investment managers beat S&P/TSX in the
          fourth quarter

      -   Value managers experienced worst year since 1999

      -   Small cap managers lag large cap again but outperform benchmark in
          fourth quarter

    TORONTO, Jan. 30 /CNW/ - First the bad news. Recent data reveals that
only 41% of large cap Canadian equity investment managers beat the S&P/TSX
Composite Index in the fourth quarter of 2007, the lowest number in over two
years, according to the latest Russell Active Manager Report. Active managers
were mainly hurt by having significant underweight positions in the Energy and
Materials sectors, which were two of just four sectors that beat the S&P/TSX
Composite in the fourth quarter.
    It was a challenging year overall for active managers, with the median
large cap manager return of 9.6% lagging the S&P/TSX Composite return of 9.8%.
The last year the median manager lagged the benchmark was in 2005, when the
Energy sector dominated and most large cap Canadian equity managers were
underweight the sector.
    "It's unusual to see the median manager trail the benchmark. But keep in
mind that active managers have historically added value over the long run,"
says Kathleen Wylie, a senior research analyst at Russell Investments Canada.

    Increased Market Volatility Potentially Rewarding for Investors

    The good news, according to Wylie, is that the increased market
volatility in the equity markets can be a positive for active managers and a
potential boon for investors' portfolios.
    "The increased volatility in the stock markets allows active managers
with skill to add more value over the benchmark. For instance, the range in
returns between the top- and bottom-performing stocks in the fourth quarter of
2007 widened out to the highest level in almost two years stemming from the
volatility. This led to a wider dispersion of returns between the top- and
bottom-performing large cap managers of almost 20% - also the highest in
almost two years," says Wylie.
    "The expectation is for volatility to continue this year, which could
make 2008 a more favourable environment for active managers. This means that
portfolios that feature highly-skilled managers that are able to add value
over the benchmark have more potential for impressive returns. The key is
having the expertise and resources to research and identify and these superior

    Additional findings from the Russell Active Manager Report

    Worst Performance by Value Managers Since 1999

    Only 16% of value managers beat the S&P/TSX Composite Index in the fourth
quarter. In contrast, 53% of growth managers outperformed the benchmark.
Although this result was not as extreme as in the third quarter, there
continued to be a significant divergence between the performance of growth and
value managers.
    In the fourth quarter of 2007, the median value manager return was -3.1%
compared to the median growth manager return of -1.0%, which was approximately
the same difference in returns observed in the third quarter of 2007.
    Once again, it was the top-performing Information Technology sector which
hurt value managers most in the fourth quarter. On average, they were nearly
2% underweight the sector compared to growth managers who were almost 3%
overweight. As well, value managers continue to have notably larger
underweights to the strong performing Materials and Energy sectors, which
detracted from their performance.
    Most value managers continue to not hold Research in Motion in their
portfolios, even as the top performing Information Technology stock rose 15%
in the fourth quarter, following a 37% rise in the third quarter.
    Value managers also did not benefit from the rise of key Materials stock
Potash, which was up 37% in the quarter. On the other hand, a number of growth
managers held the stock at overweight positions. Most value managers were also
underweight gold stocks at a time when gold prices accelerated.
    "Overall, if you look at what hurt value managers in the fourth quarter,
the story is remarkably similar to what we saw in the third quarter. This is
the worst back-to-back performance of value managers that I have seen since we
officially started tracking the quarterly data in 2000," says Wylie.
    "Fortunately, the market in the first quarter of 2008 is looking
different in terms of sector returns and might possibly a better environment
for value managers."

    Small Cap Managers Outperform Their Benchmark

    The median small cap manager returned -1.9% in the fourth quarter
compared to the median large cap manager return of -1.8%, continuing a trend
that started in the third quarter of 2007. However, small cap managers
performed extremely well relative to the S&P/TSX Small Cap Index's return of 
- 4.9% in the fourth quarter. As a result, 85% of small cap equity managers
beat the benchmark in the quarter.
    Small cap stocks returned less than 1% for all of 2007 compared to 9.8%
return for the broader S&P/TSX benchmark.
    "That made it challenging for small cap managers relative to large cap
managers on an absolute basis. But that underperfomance all came in the second
half of the year after a strong start to the year," explains Wylie. "This
might surprise some but the median small cap manager return exceeded the
median large cap manager return for the year 2007 for the first time since
    Small cap managers were helped in the fourth quarter by having almost 7%
more of their portfolios in the Information Technology sector, compared to
large cap managers. Small cap managers also tended to have larger weights in
the Materials sector which also outperformed. However, they were hurt by
having larger underweights to the strong-performing Energy sector in the
fourth quarter; as well, small cap managers had roughly 5% more of their
portfolios in the underperforming Industrials sector.

    Note: The investment manager returns in this report are total returns
including reinvested dividends and cash and are gross of management fees and
expenses. The managers in the survey tend to be institutional rather than
mutual fund managers with a focus on non-taxable investors. Institutional
managers generally tend to hold less cash and have a smaller allocation to
foreign equities compared to mutual fund managers.

    About Russell

    Russell Investment Group (Russell) is a global leader in multi-manager
investing and one of the world leaders in investment consulting. Russell
advises institutional clients with total assets of over C$2.0 trillion and
manages approximately C$225 billion in its investment management business,
which employs Russell's MULTI-ASSET MULTI- STYLE MULTI-MANAGER(R) investment
    Russell supports its global operations by monitoring more than 4,000
manager firms and their 8,600 products.
    Russell Investment Group serves institutional and individual investors
with a full range of investment services, including investment consulting,
investment funds which include private equity and hedge funds, transition
management, commission recapture and stock indexes. Founded in 1936, Russell
has its headquarters in Tacoma, Washington, USA and has principal offices in
Toronto, New York, London, Paris, Sydney, Singapore, Auckland, and Tokyo.
Russell Investments Canada Limited is a wholly- owned subsidiary of Frank
Russell Company. For more information, please go to
    Russell Investment Group is a registered trade name of Frank Russell
Company, a Washington, USA corporation. It operates in Canada through its
subsidiary Russell Investments Canada Limited. Frank Russell Company is a
subsidiary of The Northwestern Mutual Life Insurance Company.

    Commissions, trailing commissions, management fees and expenses all may
be associated with mutual fund investments. Please read the prospectus before
investing. Mutual funds are not guaranteed, their values change frequently and
past performance may not be repeated.

For further information:

For further information: Thien Huynh, Russell Investments Canada, (416)

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